Foreign Retailers Investing Their Savings Into SA


With European retail markets looking less attractive because of the financial crisis, emerging markets’ retail sectors are in the sights of foreign retailers who want to expand their turnover and improve sales.

These retailers will compete directly, which means that local retailers will have to be innovative to protect their market share.

Global retailers who have already spread their wings into South Africa have meanwhile been surprised by the healthy trade density (turnover per square metre) that their stores achieve here. In most cases this leads to aggressive expansion plans.

Before Christmas, Cotton On will open another 30 shops in South Africa, including its Factorie and Typo brands, according to the company’s Robert Kenny.

British retailer Topshop is already on its way to SA, and there’s also talk of H&M setting up shop front in SA soon.

So what does this mean? As I wrote before,

The consumer story in SA is a very bullish one. South Africans have an extremely high time preference, which means they strongly desire consumption over saving and investment. Furthermore, the average SA household is in much less debt than Western counterparts. For example, US household debt to GDP is 90%, while SA household debt to GDP is less than 50%.

Because South Africans don’t save and invest enough to produce the goods that South Africans consume (resulting in a current account and trade deficit), foreigners make up the saving and investment shortfall. This is reflected in foreign capital inflows to the country, which includes the opening up of international retail shops, such as Zara recently in Sandton city, as well as the investment by Walmart to acquire Massmart.

If SA did not receive the voluntary savings being provided by foreign investors, the standard of living of the average South African would collapse and we would need to produce more of what we consume. Price inflation would initially explode if foreign investment were to be halted, and interest rates would climb dramatically too.

For now, however, as long as the developed world work through a depression, and capitalists seek out better investment opportunities, foreign capital continues to flow into South Africa, and our standards of living improve despite a useless and corrupt government, the political infighting in the ANC, and ongoing protests and conflict around the mines.